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Get The Credit You Deserve

Going to a dealer without knowing what's on your credit report is about the most stupid thing a human being can do.  Before entering a dealer you must get a copy of your credit report.  Many people are scared because they don't know what's on their credit report or how it will affect their chances for a good deal.  Dealers use this to their advantage because almost everyone has a  bad mark on their report. How often does this happen: You get an erroneous notice from a credit card or bank saying "we never got your check".  You call them up, find out it's their mistake, no problem.  But many people are shocked to find out this error made it onto their credit report!
 

• My friend found 3 errors on his that kept him from getting a loan until they were fixed.

• My sister moved from an apartment to a house and the electric company never sent her a bill for her last month there.  She was unaware it was due, now she has a late fee charge off on her credit report and it kept her from getting a credit card! We were able to clear her credit report so she could get approved for a credit card.  Don't let it happen to you.

This is why you must get your credit report BEFORE the dealer does.  You should know your credit status so get copy of your current credit report.  Experian (formerly TRW) used to give you your credit report free but they ended that program.  You are allowed one free copy of your credit report only if you get turned down for credit, otherwise it's $8.  Your credit report arrives a week later, and shows many people have checked your credit history.   See below for online sites to get your credit report instantly and securely.  Many errors can be quickly removed with a phone call to your creditor. Dealers use errors to charge you higher interest!  You MUST have a copy of your credit report if you've never seen it before.  Show up at a dealer before obtaining your credit report, and you are in big trouble.  You might as well just give them your checkbook.  A car dealer should never know more about your finances than you do, and besides, you might find an error in your report.  This puts you at a disadvantage when the dealer calls 2 weeks after the sale to say "financing fell through, we need more cash", and they blame some black mark on your credit history
Save Money BEFORE You Take Out A Car Loan:

Should You Borrow For:  12, 24, 36, 48, 60, or 72 Months?
That's the tough part.  Never sign up to a loan longer than 48 months.  Sure cars are getting outrageously expensive, so the dealers have made 60 and 72 month loans, or 5 year leases popular.  But do you want to be paying interest for 5 or 6 years? The warranty will run out in 3 years, and that's when the trouble starts.  You'll still be paying off your car, while racking up expensive repair bills that you can't afford.  And if you have kids at that time, now you're really racking up debt.  You have to think big picture, projecting into the future of what your lifestyle and spending habits will be.  Heed my warning:
 

If you can't afford to pay off your car in 48 months,  you can't afford the car!

As a conservative rule of thumb, go with a loan term that is as long as the warranty.  For most cars, this is 3 years.  For some of the better cars, it's 4 years. Ignore the salesman's tricks, trying to convince you that 72 month payments are affordable, or quoting you lower monthly payments, then spreading it out over 72 months!  They just want to get the car sold.  Get the car paid off as quick as you can so you won't be upside down when you trade it in.   That might not be possible with the income at your disposal, but I've always paid off in the shortest time I can.  I paid off my last car in 42 months, and it was great to not have those car payments anymore.  The following table shows a $20000 loan at 8%, with monthly payments for 12-72 months.  Note how the payments drop if you borrow over a longer period of time, but the interest goes sky high!  Borrow $20000 for 72 months, and you'll pay $5248 in interest!  This adds $73 more per monthly payment.  If you paid this car off in 36 months, you only pay $2562 in interest, saving $37 a month. Don't let your brain trick you into thinking you're saving money just because the monthly payments are lower. Your payments are lower, but the loan is costing you more.  If you buy a car with a 72 month note, then 3 years later decide to trade it in for a new car you'll have little equity built up in the car, because a good chunk of each monthly payment was busy paying off the interest.  This can put you at a significant disadvantage during your negotiations.  If you decide to sell the car after 36 months, it may be worth less than what you owe on it, then you're in trouble.  I recommend loans no greater than 48 months, and 36 is ideal, accounting for emergencies, loss of job, etc.  Leave yourself margin. You DO NOT want to be trading in a car that you still owe money on.
 

Total Loan Cost For A $20000 Loan at 8% Interest (Rounded Off)
	12 Months	24 Months	36 Months	48 Months	60 Months	72 Months
Monthly Payment	$1740	$905	$627	$488	$404	$351
Total Interest	$877	$1709	$2562	$3436	$4332	$5248
Total Loan	$20877	$21709	$22562	$23436	$24332	$25248

Here is a warning from Florida's Consumer Affairs division: COLLECTING A FEE BEFORE CLOSING A LOAN IS ILLEGAL "Quick and easy loans! Even if no one else will lend you money!" Borrowers could become victims of "money brokers" offering advance-fee loans. These unscrupulous brokers target people with poor credit and attempt to capitalize on  financial woes. They  advertise in magazines, newspaper classifieds, direct mail offerings, telephone solicitations and Internet ads, promising quick and easy loans for an advance fee. Even after paying the fee — often hundreds of dollars — a consumer may never receive the loan and be left in worse financial shape than before.  A toll-free telephone number or pay-per-minute 900 number is often listed for consumers to call and request an application. They may be asked to send an advance fee by overnight mail or to provide their bank or credit card numbers so that the processing fee can be debited. Under Florida law, it is illegal for loan firms to collect a fee before the closing of a loan.  To file a complaint, call the Florida Department of Agriculture and Consumer Services at 1-800-HELPFLA (1- 800-435-7352).

 

Go to the next chapter All About Home Loans